Auto Suppliers — In the Fight of Their Lives

Perhaps the largest sector to be victimized by the current economic downturn will be automotive suppliers -- along with their customers -- who are rapidly facing declining volume and customers whose credit ratings are becoming less than stellar. According to this story from Detroit News, many suppliers are "taking drastic measures in the face of a weakening auto market and shift in consumer demand, cutting spending, laying off thousands of workers and closing plants around the country." The article sites a study from consultancy Grant Thornton that suggests "one-third of auto suppliers are in danger of collapse." This prediction is in line with a similar one published in 2007 by Alix Partners, a turnaround firm.

The majority of automotive suppliers appear to be turning to layoffs and plant closures in an attempt to avoid collapse. But while many suppliers are cutting costs to weather the downturn, others have not been so lucky. Already, this year, Blue Water Automotive Systems and Tower filed for bankruptcy and shuttered facilities. "Since 1999, more than 20 of the largest 150 auto suppliers have filed for bankruptcy," the story notes. Unfortunately, I suspect that we'll probably see another 20 -- perhaps more -- join the same dead pool list over the next 12 months. If you're in the manufacturing world -- even outside of automotive -- this is something to be extremely worried about, considering the supply base overlap between automotive and other industrial sectors at the tier two and tier three levels. Some might say it's time to invest in a supply risk monitoring system immediately. But candidly, if you did not make this decision earlier in the year, it might be too late to avoid disruptions.